Martello reports drop in revenues in Q1 2023 as firm seeks path to profitability

Wireless networking stock image
Wireless networking stock image

Martello Technologies’ revenues fell five per cent in the first quarter of fiscal 2023 compared with the previous year, the company reported this week – just days after it announced across-the-board cost-cutting measures aimed at speeding its path to profitability.

The Kanata-based wireless network troubleshooter posted total sales of $4.2 million for the three-month period ending June 30. 

That’s down from $4.4 million in the first quarter of fiscal 2021, a dip Martello attributed to unfavourable exchange rates on foreign sales as well as the loss of customers that use legacy software platforms the firm is gradually phasing out.

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Still, chief executive John Proctor was quick to point out to analysts on a conference call Wednesday that Martello is edging closer to its goal of being cash-flow positive. The company posted a net loss of $1.2 million in the first quarter, down almost 50 per cent from a $2.2-million loss the year before.

The improvement stemmed largely from Martello’s aggressive campaign to curb spending. The firm’s operating expenses fell 12 per cent year-over-year to just over $5 million, mostly due to lower headcount and vendor-related costs.

Last week, the firm announced it was cutting 15 per cent of its staff as part of another round of cost-cutting measures aimed at trimming overall expenditures by 20 per cent in fiscal 2023.

Proctor said that effort – as well as the firm’s decision to focus on its growing Microsoft sales channel – will soon pay off on the bottom line.

“We had to do defensive and offensive measures,” he said. “The defensive (side) was cost-cutting and making sure we accelerate our time to cash-flow positive. The offensive is doubling down in the Office 365 space – being more effective and more focused there.”

When asked whether Martello has a targeted timeline to become cash-flow positive, chief financial officer Jim Clark said the company would not offer specific guidance.

“This is about continuous improvement,” he said. “Rest assured, we have a plan to achieve that.”

“This is about continuous improvement. Rest assured, we have a plan to achieve that.”

Martello – which makes products that help customers detect and fix problems in their high-speed communications networks – makes its money from two main sources: performance-analytics software aimed at Mitel customers and analytics and network-monitoring  platforms for Microsoft 365 and Teams users.

While the firm started out serving mainly Mitel customers, the Microsoft sales channel has quickly gained ground as the number of Teams users has soared during the pandemic to more than 12 million. Microsoft customers accounted for 47 per cent of Martello’s revenues in fiscal 2022, up from 41 per cent a year earlier.

That growth is expected to accelerate in the months ahead as new deals the firm has inked with Microsoft sales partners around the world begin to bear fruit. 

Martello said 365,000 paying customers had signed on to its flagship Vantage DX troubleshooting software for Microsoft users as of June 30 – a 60 per cent increase from the previous quarter.

New sales opportunities

“We alone, of all of the people in this space, can see both the internet, the network and the phone side” for Teams users, Proctor told analysts. “We become more and more important to that side.

“What we’re now seeing is Microsoft is bringing (sales) opportunities to us. We’re starting to see that (channel) pick up.”

Clark said Martello is confident it’s turned the corner after several quarters of flat or negative growth.

“What I’ll say is, we have a plan, and we’re very, very confident that we’re going to be in a position of new growth in the coming quarters,” he said.

Martello was trading at three cents on the TSX Venture Exchange Thursday afternoon, down a penny on the day. Its stock has dropped five cents since the start of 2022 and is down significantly from its 52-week high of 14 cents set last September.

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